Banks’ loans as alternative compliance to the reserve requirement (RR) reached P283.1 billion as of May this year, up 1.9 percent from same period last year of P277.8 billion, based on Bangko Sentral ng Pilipinas (BSP) data.
The utilization of loans as RR compliance has been discontinued by the BSP as of June 30 for big banks or the universal and commercial banks. However, smaller banks such as thrift, rural and cooperative banks are still allowed to use loans to micro, small and medium enterprises (MSMEs) and large enterprises not affiliated with conglomerates as alternative compliance with the RR against deposit liabilities and deposit substitutes.
The small lenders will be allowed to implement the relief measure until full payment or settlement but not later than Dec. 31, 2025.
As of the third week of May’s reserve period, banks released P216.9 billion of loans to MSMEs as RR alternative compliance. This accounted for 13 percent of total required reserves. The amount was higher compared to P212.8 billion in May 2022 which was 13.6 percent of the reserves at the time.
Loans allocated for large enterprises reached P66.2 billion, accounting for four percent of total required reserves. This was also higher compared to P65 billion in 2022 which was 4.2 percent of total reserves.
With the continued recovery in the economy, the BSP has started to wind down the relief measures implemented during the Covid-19 crisis except for those that encourage lending to MSMEs.
Meanwhile, the BSP reduced the RR ratio on June 30, the same day that the relief measure expired.
The BSP cut both banks and non-banks’ RR ratios to single-digit levels by as much as 250 basis points (bps) for selected banks.
The new ratios will apply to the local currency deposits and deposit substitute liabilities of banks and non-banks, said the BSP.
The BSP has previously announced to the market that it will reduce the RR ratios before the expiration of the RR-compliant loans. This relief measure was first implemented in March and April 2020 and extended three times.
Changes in RRs have a significant effect on money supply in the banking system.
The last time the BSP reduced the RRR for big banks was March 2020, when Covid-19 was first declared a global pandemic. By August of the same year, the BSP also reduced the RRR of thrift and rural banks by 100 bps.
Since RRs refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP, these funds cannot be used for lending.